Chapter 8
Overcoming the Fear of ‘No’
We mentioned earlier that the Cambridge Dictionary defines price as the amount of money we exchange for something, but the dictionary contains a second primary definition of price: ‘the unpleasant results that you must accept or experience for getting or doing something’.1 In other words, a price is also a burden. This second definition of price – equally valid as the first – also matters in sales negotiations: Who pays that price for the outcome? Who bears the burdens?
This question is usually overlooked, to the detriment of salespeople, their products, and their companies. The presumptive solutions described in the previous chapter impose an additional burden on salespeople in order to make it harder for them to say ‘yes’. But what if we define the problem differently. Instead of trying to make it harder for them to say ‘yes’, why not make it easier for them to say ‘no’? That difference sounds esoteric, but from a practical and behavioural standpoint, the two phrasings could hardly be further apart.
There are two primary reasons why making a ‘no’ easier is a better approach than imposing additional burdens on salespeople in order to make a ‘yes’ harder. The first primary reason involves the mental and emotional aspects of discounting that the ghost of homo economicus doesn't acknowledge. Think back to the wine experiments and the price–quality heuristic. Prices have strong emotional effects and not merely financial ones. Similarly, there are forces within our brains that reinforce ‘yes’ as the untrained dominant response.
In larger companies, the administrative burdens of the conventional ‘castle’ solutions we described in Chapter 7 artificially impose an uncomfortable mental burden on salespeople. This is counterproductive, because rules often dare salespeople to find expedient ways to work around the rules and procedures to give the customers what they want. The rules encourage evasion rather than compliance.
Let's say a discount above 10% requires approval from sales management. Salespeople can circumvent that rule by staggering the discount (say, first 6% and then 4%) to stay under the threshold. Sometimes sales management takes the path of least resistance as well. When a salesperson ostensibly submits 20 pages of forms to defend a discount by sending an email at 11:30 a.m. and approval comes via email two minutes later, did anyone really read those forms? Finally, the ‘castle’ rules lead to unintended consequences in terms of how salespeople interpret the logic: if the salespeople are required to defend the discount by following burdensome rules, then the discount must be worth defending, right? This makes the dominant response of ‘yes’ even harder to dislodge.
Now let's get to the second primary reason why making ‘no’ easier is the better approach than making ‘yes’ harder. The New Economy, driven by rapid ongoing progress in digitalization, has thrived by flattening hierarchies and encouraging agility. Speed and agility are the new key success factors for any organization, regardless of size. Larger companies are changing their organizations to keep up with the agility of smaller competitors. These fast, agile organizations require self-steering teams that can learn continually. Responsibilities are migrating from the centre to the front lines, so that companies can act faster and be as close to their customers as possible.
Customers in turn expect to interact with people who are empowered and enabled, not with people who are hamstrung by unfavourable perceptions of slowness and bureaucracy. Who wants to negotiate with a salesperson who is constrained by extra rules and processes? The digital economy needs salespeople equipped with meaningful pricing autonomy. The establishment of barriers and elaborate internal processes is counterproductive. Fortifying those barriers and complicating the processes only make matters worse.
This is the practical argument for educating and training salespeople so that it is easier for them to say ‘no’ to requests for discounts or lower prices. This ability – this trained dominant response – will become increasingly important as end-to-end digitalization and process automation between companies create new standards for interaction. In this new world, salespeople will become involved primarily – and in many cases, only – at times of active decision making, which involves the kinds of judgment calls that a machine cannot make.
Boston Consulting Group (BCG) cited data that show that professional buyers, on average, complete 57% of their purchase process before they get in touch with a salesperson.2 Such data clearly show that the role of the salesperson has fundamentally changed. In the Old Economy, salespeople pitched the product and provided basic information. In the New Economy, the buyers often have more information and advance knowledge than the salesperson could ever hope to provide them with. That means that salespeople should consider themselves to be influencers, not information providers.
The science behind ‘yes’
If you want to become an agile, autonomous decision maker and influencer, one of the key prerequisites is to recognize and internalize what we said at the start of Part II: salespeople cannot steer prices until they understand how prices steer people. ‘People’ in that sense applies to everyone, but especially to the buyers and the salespeople themselves.
Making it easier to say ‘no’ means overriding or minimizing four universal phenomena which conspire to reinforce ‘yes’ as the dominant response:
- Saying ‘yes’ is easy and fast, especially amidst resource constraints or artificial pressure.
- It is easier to ignore inconvenient or uncomfortable facts than to embrace them.
- Losing hurts more than winning excites, even when the spoils are equal.
- Losing face or losing a relationship hurts more than losing money.
The simplicity of these statements belies just how deeply rooted and universal these effects are in human thinking. They are powerful and omnipresent, which means they have a material effect on the outcomes of any sales negotiations. Prices not only recalibrate value in the conventional, financial sense. Prices also alter the emotional intensity and spectrum within a negotiation, in the same way that a higher price changes the sensorial experience of sipping an otherwise ordinary glass of wine.
There are also forces that act upon the buyer's mind in a sales negotiation, and we will highlight a couple of important ones when we talk about playing offence for price adjustments and price increases in Part III. For now, we concentrate on what is going on within the salesperson's mind.
1. Saying ‘yes’ is easy and fast, especially in times of resource constraints or artificial pressure
Psychologically, a ‘yes’ provides the salesperson with immediate relief and resolution at an emotional level. This is especially true when a business comes under pressure to make a sale. If you want to make a customer happy, it is easy to believe that the most expedient means at your disposal – and in many cases, the only one – is to say ‘yes’ to a demand for a lower price. ‘Yes’ eliminates the fear and risk of losing a sale, because the negotiation is over.
By default, a ‘yes’ also reduces a corporate salesperson's workload. Saying ‘no’ might mean spending additional hours working on the problem, but there is also the issue of personal workload. Say ‘yes’ could mean getting a day off or making it to a child's event on time.
2. It is easier to ignore inconvenient or uncomfortable facts than to accept them
Imagine seeing an advertisement for a conference that claims to teach you how to cut your company's profits in half. The conference sponsor even sells merchandise such as t-shirts and mugs with the phrase ‘Money Loser’ printed on them in huge letters.
Would you race down to sales VP's office and ask for the budget to register for the conference and travel to the site? Of course you wouldn't. No one in their right mind would sign up for a conference with that topic.
Yet, every day companies sign contracts that guarantee discounts that essentially accomplish the same effect. Think back to the Table 7.3. If your company achieves a margin of 20% at current prices, offering a discount of 15% would cut profits by over 70%, even if that discount allowed you to sell enough additional volume to keep your revenue constant.
Why do we discount when we know the costs? Why do we do that, even when we can recite the counterarguments by heart and calculate the damage on the back of an envelope? As Bremen University professor Gerhard Roth explains, human beings want congruence between their experiences, beliefs, and actions – past, present, and future. Ideally, what we do right now should not only align with our massive treasure chest of past experiences, but also be something we can live with tomorrow.3 We all need congruence between what we do in the outside world and how we want to see ourselves. Our previous experiences influence our decisions, even if we try consciously to diminish or dismiss them. Not everyone is living in the past, but the past is living in everyone.
So when we encounter conflict instead of congruence, we experience a psychological force known as cognitive dissonance. This dissonance arises when salespeople understand the dire maths shown in the Tables 7.1, 7.2, and 7.3, but ignore the implications anyway, usually with an excuse like, ‘growth will make up for the losses’. They ignore the fact that some markets do not have enough excess demand to allow the firm to break even after a discount. Offering a substantial discount virtually guarantees that the company will earn less money.
When we face the dilemma of needing to say ‘no’ but wanting to say ‘yes,’ System 2 and System 1 urge opposing courses of action. This leaves the salesperson with two basic options to create an alignment or congruence between action and attitude:
- Change the action: Choose the hard route by learning to say ‘no’ and learning to indulge in the feeling of having done the right thing.
- Change the attitude: Say ‘yes’ to the request and find some rationalization or justification that allows you to believe that ‘yes’ makes more sense than ‘no’.
People find all sorts of ways to rationalize a ‘yes’, which is the untrained dominant response from System 1. Sometimes they think that the deal or the customer is ‘strategic’ without specifying what that strategy is. Sometimes they buy into the belief that the customer will reward the concession by buying more product in the future, even if the volume of the current deal remains unchanged.
The desire to rationalize can be so intense that some sales teams pre-plan their excuses as well as their pitches. People find comfort in knowing they can explain a bad outcome, should one occur, but there is a significant risk that these advance rationalizations become self-fulfilling prophecies. It is interesting that the English language uses the word ‘rationalization’ for our mental excuse-making machinery. The word implies that what happened – the unexpected or unfavourable outcome we are trying to cope with – was somehow irrational.
As we explained in Part I, the conflicts that play out between System 1 and System 2 are not rational versus irrational, but rather between two powerful forms of thought, each of which makes perfect sense in its own context. Each leads to desirable outcomes when we understand how they work and how to apply them.
The worst resolution of the cognitive dissonance is a change of attitude that turns the salesperson against his or her own company. The salesperson thinks, ‘My company does not care about me. They don't pay me enough and they don't appreciate my work. So why should I work in their interests when I can put my self-interest and my own personal “profitability” first?’ They feel better after offering the discount and can live with themselves, even if the ‘yes’ costs them some commission money. If a salesperson self-optimizes in a way that works against the employer's interests, that's a recipe for disaster.
Any ‘yes’ may seem like a one-off, but when someone changes their attitude, it virtually assures that will repeat that action. This is how one-time rationalizations become permanent ways of thinking, thus reinforcing the dominant response. There is a chicken–egg question regarding whether attitude determines action, or whether action determines attitude. For salespeople, the latter is often the case. The desire to say ‘yes’ prevails and over time can turn a rationalization into a doctrine.
3. Losing hurts more than winning excites, even when the spoils are equal
Here's a quiz that is more elaborate than our usual ones. Let's look at two events that salespeople will almost assuredly encounter if they are in business long enough. After you read the first event – but before you continue – immediately write down a few words to describe how you would feel if that happened to you. Perhaps you can recall a similar event in your own career.
Then read the second event and do the same.
Event A: A new client agrees to a sale valued at $500,000. You and your team log out of the conference call, satisfied and ready to celebrate. As you await the arrival of the formal purchase order, you already notify the rest of the company to arrange production and shipping timelines. Then two days later you wake up to an email from the head of the procurement team. She begins with a euphemism-filled explanation that there was a detailed review, some potential conflicts of interest and contractual matters, and so on, and then comes to the punch-in-the-gut line: you won't be getting a purchase order. The deal is off.
Now, quickly write down how you feel, before reading Event B. Once you have captured those initial thoughts, take a timeout and consider what happened and what your next steps might be. This will give you a System 1 and an initial System 2 perspective.
After that, you can proceed to Event B.
Event B: You and your team are renegotiating a $500,000 deal with a client whose business you had counted on for the current year. For the last three years, these meetings have been little more than rubber-stamp events, with perhaps a few changes at the margins but no threat to the ongoing relationship. This year, however, you leave the conference call feeling exhausted and deflated. After a drawn-out negotiation process that you think you have managed very well, you receive every possible signal that the client will not renew. Those $500,000 you counted on have essentially gone ‘poof’. Before the postmortem even begins, you start drawing up plans on how to replace that sudden hole in your budget. Then two days later you wake up to an email from the head of the procurement team. He apologizes for being somewhat vague and evasive in the previous meeting, but they had some final internal obstacles to overcome. Then he comes to the punch-bowl line: you will be getting a fresh purchase order after all. The deal is still on!
Now quickly write down how you feel, both initially and after some thought. Then compare your responses to each event.
Behavioural science would predict that you probably felt angry, upset, ripped off, or humiliated by Event A, while you felt relieved, lucky, or perhaps happy by Event B. The fascinating thing about the stark differences between those lists is that from a purely financial standpoint, there is no difference between Event A and Event B.
In Event A, you thought you had sold an incremental $500,000 worth of business, then effectively lost that business a couple of days later. In Event B, you thought you were about to lose $500,000 from your planned revenue base, only to find out a few days later that you had retained your business. In both situations, the net financial effect is zero. Your revenue base is unchanged.
How you feel, however, is much different. The explanation lies in prospect theory, a set of concepts that earned Kahneman a Nobel Prize in 2002.4 Prospect theory has practical applications for sales negotiations, because it helps to explain the way we assign probabilities to outcomes and the way we feel about those outcomes. People have a psychological or emotional ‘zero point’ that differs from their objective financial one. In this case, the order of the outcomes recalibrates the emotional zero point even though financial impact is zero.
4. Losing face or losing a relationship hurts more than losing money
A group of salespeople was asked to evaluate the current state of their relationships with the customers, seemingly drawn from a random list.5 They used a ‘stoplight’ system: green meant that they were on good terms, the customer liked them, and vice versa. Negotiating deals with them usually went smoothly. Yellow meant that the relationship was neutral or fair, with both sides pushing for compromises that left neither side feeling disadvantaged. The salesperson viewed the customer as neither friendly nor contentious. Red meant that the relationship with the customer had some friction or points of contention. Dealing with these customers was uncomfortable and difficult.
The results of their assessments were then matched to a scatterplot of customer size against the average discount that customer received for the company's flagship product, as shown in Figure 8.1. The grey-shading shows the contrast between red, yellow, and green (from top to bottom) and each area is labelled.
Figure 8.1 What happens when you map the salespeople's view of their customer relationship (red-yellow-green) with customer purchase volumes and prices
The red customers in the top oval – the ones perceived as the most difficult – received the lowest discounts, regardless of size. The results for the yellow customers (middle oval) seemed both intuitively and logically correct. There was a correlation between size and discount for the yellow customers, indicating that the company had a system of volume discounts that worked according to plan. These customers received proper attention and salespeople exercised greater care.
The green customers in the bottom oval, however, tended to receive the largest discounts, regardless of size. In the subsequent discussion with the salespeople, it turned out that the green customers were also most likely to be ‘service hogs’, the kinds of customers that constantly ask for and receive free above-and-beyond support in a wide range of forms. It seemed as if the salespeople were ‘buying friendship’ by fostering these relationships with ongoing concessions.
The irony is that the ‘stoplight’ colour scheme describing the relationships corresponded to the traffic signals that the buyers themselves perceived. A ‘green’ customer had a green light to keep asking for more, safe in the knowledge that the salesperson would honour their requests. ‘Yellow’ customers played a game of give-and-take. ‘Red’ customers didn't win concessions, but interestingly, they still bought the product at the relatively high prices.
Why do these green customers receive such large discounts and concessions? Saying ‘yes’ has become a habit well attuned to one of our evolutionary pre-sets: the desire to be liked. Being liked is a central motivation behind the green relationships. Put another way, when ‘yes’ is a salesperson's untrained dominant response, saying ‘no’ to a request for a lower price will make the salesperson uncomfortable. They agree to the discount request to avoid putting their perceived positive relationship at risk.
The innate desire to be liked is the deepest source of the difficulties to say ‘no’. From an evolutionary standpoint, it is yet another example of why modern humans are essentially cavepeople in designer clothes. Getting excluded from the community or thrown out of the tribe was a death sentence 10,000 years ago. Being liked played an important role in inclusion and thus to improving our chances of survival. It leads us to hide or suppress anything that could endanger our membership in the tribe.
Anthropologist Clifford Geertz elaborated on this concept in his seminal work The Interpretation of Cultures: ‘These congruities of blood, speech, custom, and so on, are seen to have an ineffable, and at times overpowering, coerciveness in and of themselves … The general strength of such primordial bonds, and the types of them that are important, differ from person to person, from society to society, and from time to time. But for virtually every person, in every society, at almost all times, some attachments seem to flow more from a sense of natural – some would say spiritual – affinity than from social interaction.’6
In the spirit of cognitive dissonance, the desire to remain bonded to a group can even be stronger than the belief in the tribe itself. In describing the temple-going behaviours among the Balinese, a culture he studied extensively, Geertz wrote, ‘You can believe virtually anything you want to actually, including that the whole thing is rather a bore, and even say so. But if you do not perform the ritual duties for which you are responsible you will be totally ostracized, not just from the temple congregation, but from the community as a whole.’7
Within the context of corporate sales negotiation, a salesperson could think that saying ‘no’ to a discount request would violate a norm and put them at risk of ostracization. The risk of such a fate can make even a twenty-first-century businessperson feel as uncomfortable as a tribe member. Ostracization can range from a temporary denial of access (the customer doesn't return your emails or calls) to exclusion from the customer community. At a time when relationships are vital to a salesperson's success, no one wants to risk being on the outside looking in.
Let's see where we stand so far
Before we show the specific, proven steps you can take to make ‘no’ your dominant response – and establish a basis for irresistible pricing – let's first recap Part II so far.
- Prices can cause both pleasure and pain: They also trigger various emotions that additional stress can intensify. This means that a price decision is always an emotional decision, and not a purely mathematical or logical one. It places demands on System 1 and System 2. In detail, there are several forces in our minds that distort how buyers and sellers assess risks and outcomes. These forces are universal.
- Discounting is the salesperson's path of least resistance: The salesperson's natural inclination is to yield to a buyer's request for a concession, especially the request for a lower price or a discount. This reflects what we refer to as their untrained dominant response.
- Discounts are costly: The ghost of homo economicus still has some truths to tell. The calculations show that when a salesperson grants a discount, it is difficult for a company to break even in terms of revenue, and highly unlikely if not impossible for it to break even in terms of profit.
- Several forces make it hard to resist the path of least resistance: One could argue that money is the easiest way for salespeople to make customers happy and maintain a relationship with no extra effort, because it is the easiest customer-facing parameter to change. Cognitive dissonance encourages us to ignore the maths and logic that tells us that discounts harm the company's short-term profits and potentially its long-term value. Prospect theory describes how we distort the value of our relationships with buyers, and thus how much is at stake. Finally, people have a primordial desire to be liked. The ubiquitous obsession with sales growth intensifies these three effects, in part because it is much easier for salespeople to track their own revenue precisely. In contrast, it takes a team – and often considerable time – to figure out a deal's total profitability.
- The solution is to change the salesperson's dominant response to ‘no’: Discounts are emotional decisions. Limiting or preventing them therefore requires an emotional counterstrategy grounded in science. The naturally confident, consistent dominant response of a salesperson should be ‘no’ when a buyer asks for a concession.
- The key, however, is to make ‘no’ easier, not to make ‘yes’ harder: Conventional attempts to change a dominant response involve trying to suppress the untrained dominant response (make the ‘yes’ harder) rather than to change it by making the ‘no’ easier. That is why discounts remain commonplace, despite investments in training, incentives, rules, and procedures to discourage or prevent them.
Success in the Invisible Game – and the pricing game within the game – requires behavioural change. Hence, the recommendations in the rest of Part II will equip you with leading-edge self-development tools.
Notes
- 1. Cambridge University Press. (n.d.). Price. Cambridge Dictionary. https://dictionary.cambridge.org/us/dictionary/english/price (accessed 30 May 2022).
- 2. Mustaghni, B., Lehrke, S., Archacki, R. et al. (2021, March 8). Building Bionic Capabilities for B2B Marketing. Boston Consulting Group. https://www.bcg.com/publications/2021/building-bionic-capabilities-to-improve-b2b-marketing (accessed 27 May 2022).
- 3. Roth, G. and Herbst, S. (2019). Warum es so schwierig ist, sich und andere zu ändern: Persönlichkeit, Entscheidung und Verhalten. Stuttgart: Klett-Cotta.
- 4. Kahneman developed the theory together with Amos Tversky, but Tversky had passed away before the awarding of the Nobel Prize. The prizes are not awarded posthumously.
- 5. The circumstances of this meeting have been simplified and disguised.
- 6. Geertz, C. (1973). The Interpretation of Cultures. New York: Basic Books, 259–260.
- 7. Geertz, C. (1973). The Interpretation of Cultures. New York: Basic Books, 117.